It appeared at the market open Monday that after much hand-wringing this weekend there is no clear path to a compromise for the Congressional Deficit Supercommittee in time for its Thanksgiving deadline. Epic FAIL. The markets responded, down 300 points as of this post. As an American, I’m pissed: now here comes again the credit rating agencies, who will reward this latest political failure with another downgrade and make credit for all Americans harder to obtain. As a healthcare executive, I’m breathing a sigh of relief, however momentary it may be. Sequestration is coming, and it’s a better scenario for Medicare and Medicaid than anything this kangaroo court might have come up with.
In terms of the impact on health plans, we fully anticipated that the Super-Committee would not reach a deal, and that sequestration’s 2 percent cut to Medicare in 2013 was a given. It won’t be without its pain: that’s another 2% hit on Medicare Advantage on top of those that helped fund the ACA, and will hurt MA margins in 2013 and 2014. This will make smaller MA players even more vulnerable to assault from large publicly-traded plans and drive a steady drumbeat of consolidation in the program. But we expect that the impact will be manageable for most through mastery of risk adjustment and Star ratings bonuses, with some passthrough to providers and beneficiaries.
The biggest question in the collapse of the Supercommittee is what now happens to the “doc fix” — the looming 29% cut to Medicare fee-for-service reimbursement rates for physicians that goes into effect in January. The Supercommittee may have been the last bus out of town for the fix.
The failure of the Supercommittee is also a short-term positive for Medicaid, as it was exempted from sequestration. The states’ steady march toward managed care for the remainder of the “moms and kids” (TANF) and the dual eligibles and institutionalized will continue unabated, opening up a new market opportunity for health plans in excess of $300 billion per year by 2015.
The focus in Washington will now shift to how to mitigate some of the draconian cuts to the defense budget that are now scheduled to go into effect in 2013 and that will cause Republicans to foam at the mouth. The frenzy to avoid them will accelerate the discussion around more desperate measures for Medicare and Medicaid. The previously unthinkable will become fixtures of the debate in this next year. Raising the eligibility age to 67. Passive enrollment for the duals into health plans. An opt-out only for Medicare beneficiaries — you’re in a plan unless you choose otherwise and pay more. “Death panels.”
This will harden partisan battle lines around the future of our two most essential healthcare programs as we head into the elections. In the end, the elected class will duck and cover, demagogue the issues and scare the crap out of seniors, and then take it to the voters in 2012. Election Day can’t get here soon enough.